Michael Volkov on Internal Investigations: Best Practices

Guest Post by Michael Volkov

In-House counsel and corporate compliance officers dodge bullets everyday as they stare down the barrels of aggressive prosecutors, regulators, civil litigants, whistleblowers, disgruntled employees and shareholders prodded by trial attorneys to file derivative suits at the drop of a hat. In the face of all of these risks, internal investigations have become commonplace and a standard defensive tactic for a company to regain some leverage, learn the scope of a potential problem and then develop a plan for resolving a particular issue.

All too often, companies follow the rote formula developed in the Sarbanes-Oxley era of the early 2000s. Those same formulas are being applied in the Foreign Corrupt Practices Act, and in more discrete global anti-corruption, money laundering, export compliance and antitrust enforcement matters. This model, while very helpful in some situations, can set up potential problems for a company. A slavish devotion to so-called “independent special counsels” can sometimes lead to erratic, costly, and less than helpful internal inquiries, which may expose a company to significant risks, depending on how the investigation was conducted.

Investigative Independence: Let’s be Practical

The standard model for “independent special counsel” – an independent committee of Board members supervising outside counsel is designed to maximize the “independence” of the inquiry so that the results of any investigation will be viewed as thorough and free from any potential bias. According to the concern, established corporate counsel may have an incentive to conduct an inquiry that “pulls punches” out of favoritism from the company. But are there alternatives? Of course there are.

These days, most Fortune 500 companies, have a laundry list of firms they turn to on specific matters. (One in-house counsel recently told me they use 400 outside law firms). What matters more is not whether the company turns to a firm it has not used before to conduct the inquiry, but who the company engages to supervise and conduct the inquiry. Once that team is selected, and a counsel is chosen who has a reputation for conducting fair and impartial, as well as aggressive inquiries, that team can be kept separate from any established counsel who may have a relationship with the company. And in fact, the independence can be maintained through the standard “Chinese wall” or other appropriate safeguards. It is important to keep in mind that any experienced counsel wants to maintain his or her integrity and his or her reputation for conducting through, fair and “let the chips fall where they may” inquiries. To think that somehow a respected investigative counsel is going to somehow pull punches is unrealistic. So long as transparency is followed and fairness is pursued, these issues can be overcome.

Attorney-Client Privilege, Work Product and Waivers

While many outside counsel and Boards wrestle with the difficult issues of waiving attorney-client privilege and work product protections in order to deal with prosecutors and regulators, they may be spending too much time on an issue which is more form than substance. Prosecutors and regulators do not really care if the information is privileged or not – what they want is one thing – the information itself. With that in mind, how much of an internal investigation is legitimately privileged and how much of it is subject to work product protection? These issues depend on the specific circumstances. Yet, all too often, companies and counsel broadly apply privilege and work product claims on anything and everything that moves without regard to the importance of such information and possible strategies for use or disclosure of such information. Instead, counsel need to focus on what information will the government want and how can it best be packaged, without engaging in the dance or theoretical discussions about waiving privileges.

Document Preservation, Collection and Review: A New, Global World

Special care has to be taken with regard to document preservation, collection and review. In-house counsel, regular outside counsel, and special counsel need to act with care but do not need to be hyper-concerned about every little step that is taken. As special counsel become more familiar with the scope of the investigation and the issues, regular counsel and in-house counsel should play a critical role in making sure that sufficient steps are taken to preserve documents, collect an appropriate scope of documents, and identify, and even interview, some individuals to determine whether or not they may have relevant information. All of this can and should be done quickly, and may be completed before special counsel is ready to proceed and take over. These are critical initial steps with enormous importance to the overall success of the internal investigation.

Two significant pitfalls arise in the early stages of such an investigation: (1) data privacy laws and regulations outside the United States may prevent or hinder collection, dissemination and review of relevant documents; and (2) documents which are brought within the United States may then become subject to subpoena by United States authorities. Both of these concerns are significant and can undermine an investigation if careful attention is not paid to these potential risks. Document collection and review may have to take place in foreign locations in order to avoid running afoul of these restrictions.

Michael Volkov, partner at Mayer Brown,  is a former federal prosecutor with almost 30 years’ experience in a variety of government positions and private practice. Michael’s practice focuses on white collar defense, corporate compliance, internal investigations, and regulatory enforcement matters. He has experience in the Foreign Corrupt Practices Act (FCPA), compliance counseling, special committee representations, money laundering, Office of Foreign Asset Control (OFAC), export controls, sanctions and International Traffic in Arms, False Claims Act, Congressional investigations, online gambling and other regulatory enforcement issues. Most notably, Michael served for more than 17 years as a federal prosecutor in the US Attorney’s Office in the District of Columbia and has been lead attorney in more than 75 jury trials. Michael has an amazing blog at Corruption, Crime & Compliance, a must-read for compliance professionals and white collar criminals.

Leave a Reply